Measurements of performance and benchmarking: REVPAR, TREVPAR and GOP PAR

September 9, 2012

Hotels today have potentially bewildering sets of data results and information to judge themselves and their performance against.

How times changed

In ‘Ye Olde Days’, hotels looked regularly at their Occupancy, Average Room Rate and of course their Total Revenues, and compared figures with Budget (or other target) and Last Year. Up or down was naturally good or bad…

All this changed with the advent of email and data communications and the easy delivery of your hotel data into industry benchmarking studies that became a natural thing to do. Tri HOTSTATS was at the forefront with STR Global arriving from the US, and with other studies such as PKF also being part of the picture.

This meant a hotel or hotel company could compare itself with a ‘Valid Competitive Data Set’ of other hotels in a defined area. If you were considering investment in the area, you could acquire the history of that market’s performance. Another spin-off was that the top levels of the aggregated data told the industry as a whole how we were performing, and showed the correlation of the UK Hotel Industry with GDP.

All of these measures were inevitably Sales led. REVPAR (Room Revenue Per Available Room) became a new ‘asset’ measurement – effectively combining Occupancy and Average Rate.

For hotels with larger F&B outlets and Banqueting and Leisure facilities, however, this is not enough: TREV PAR (Total Revenue Per Available Room) is as important for them – Rooms is not necessarily the largest component of their business.

But once any business has reviewed all their sales performances and bench-marked it with the wider industry (very important to ensure you have the correct competitive set by the way!) there is always a need to review profitability – otherwise why are we in this business?

Using Statistics to understand performance

The great thing about the world-wide hotel Industry is that we have something called the USALI – Uniform System of Accounting for the Lodging Industry – or ‘Uniform System’. It has been around since 1926 – we are on version 10 at the moment – and enables hotels using the system to be compared at a Standard P&L Level to each other, not just at a Sales level. (The Uniform System also underpins many Hotel Management Agreements between an owner and operator as a Standard P&L Format).

The point here is that Operational Profit can also now be effectively benchmarked through these studies and analysed at a consistent operational level called GOP – Gross Operating Profit (before messing around with property costs such as Rates and Rents), because the USALI enables this.

Recent reports suggest that UK Hotel Revenues – TREVPARs and REVPARs – may have grown in 10 years (even since 2008) but that profitability has not (now measured as GOP PAR) – in fact it has reduced dramatically.

Hotel businesses should be using these Statistics with their own data, using the analytical tools available today (for example, Excel) to graphically understand their performance compared to their Competitive Sets and their own history and trends. Graphics, rather than a ‘heap of numbers’, can

show that a picture is worth a thousand words –and that Sales and Profitability are equally important to any Hotel business and should be examined with equal reverence!